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Twitter ads show promise ahead of IPO, survey says

November 06, 2013|By Jessica Guynn
  • Twitter's advertising platform has more promise than Facebook, survey shows.
Twitter's advertising platform has more promise than Facebook,… (Jeff Chiu / Associated Press )

SAN FRANCISCO -- Twitter may still be a small player in the digital advertising world, but its advertising platform has more promise than that of Facebook and could justify the company’s potential market value, which has risen by several billion dollars ahead of its initial public offering on Thursday.

That’s according to a new national survey from Frank N. Magid Associates, which says consumers respond more positively to ads on Twitter than they do to ads on Facebook — in large part because the ads blend so smoothly into the service.

Unlike Facebook, which has had to adapt to mobile devices, Twitter was made to work on these devices, and earns more than 70% of its revenue from mobile device users. As more advertising dollars shift to mobile, Twitter stands to benefit, said Natalie Clayton, Magid’s executive director of strategy consulting.

Twitter is expected to begin trading on the New York Stock Exchange on Thursday. On Monday, the company raised the price range for its IPO to $23 to $25, meaning it may be worth as much as $13.9 billion on its first day of trading. The price increase came as analysts issued bullish reports on Twitter’s long-term revenue potential.

Twitter is expected to garner just 0.5%, or $580 million, of the total spending on worldwide digital advertising this year, according to research firm eMarketer. That compares with $6.4 billion that’s expected to go to Facebook.

But Twitter is still growing at a healthy clip, the Magid survey found.

Nearly 70% of the U.S. population ages 12 to 64 with Internet access use social networks at least once a week, up from 60% in 2012. The growth is being driven by smartphones and tablets, the survey found. Nearly 80% of 18- to 34-year-olds use a mobile device to access social networks.

The most popular social networks are mobile and visual, such as Instagram, owned by Facebook, and Snapchat. But Twitter is more than holding its own, the survey found.

While usage among 12- to 64-year-old social media users in the U.S. remained flat for Facebook, Twitter’s usage grew 14% to 41% from 36%.

Twitter said last week that it has taken steps to become more visually appealing, with a greater emphasis on pictures and videos in users’ feeds on Twitter.com and on Android and iOS devices.

“Twitter is the largest social network that is still growing in the U.S.,” Clayton said. “Facebook is stagnant, Google+ is stagnant. But Twitter is still chugging along.”

Users tend to view advertising on Twitter as less disruptive and repetitive than on Facebook and that means Twitter could boost the frequency of ads shown to users, said Jeff Segal, Magid’s manager of strategy consulting.

“Ads on Twitter look like content and people see them as content, so it makes for a better overall advertising experience and one that allows for higher ad loads,” Segal said.

The volume of ads — not just the prices paid for ads — are a closely watched metric. In July, Facebook said it was showing one ad for every 20 stories that appear in users’ News Feed.

Chief Financial Officer David Ebersman told analysts last week that Facebook had increased the ratio to slightly higher than 5% but would not increase it much more going forward, causing some alarm on Wall Street.

“The cap on inventory is a smart move given the push-back we are seeing from consumers,” Clayton said.

Twenty-nine percent of Facebook users say there are too many ads, 24% say they are too repetitive and 23% say they are too disruptive, the Magid survey found.

Consumers tend to reject ads on Facebook because they are hanging out on the service to spend time with family and friends, whereas on Twitter they are often seeking out news, information or even following brands, Clayton said.

Advertising on both Twitter and Facebook are “very effective,” the survey concluded. Sixteen percent of users on Facebook and 18% of users on Twitter click on commercially sponsored content at least once a week. Still, 44% of users on Facebook and half of users on Twitter say they never click on ads.

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